"Win a Wegmans Gift Card" Blog Contest & Tutorial

My wife Jennifer is teaching an on-line law course for RIT students this Fall. Both my son and daughter-in-law received their Master's degree from an on-line graduate program at Marist College. What a great concept! On-line, on-demand, when you can.

I worked part-time tending bar while attending college and can still remember how difficult it was to work until 2 a.m. and then drag myself out of bed for my Friday morning economics class. Where was this on-line course study back then?

Anyway, I was recently asked to present a short tutorial on nursing home reimbursement for a group of community leaders serving on a commission to help formulate a vision for how the greater Rochester area should provide healthcare for seniors in the future. So I dusted off an old summary, honed and updated it and voila! Then I thought, "why not share it with my blog readers as an informative on-line tutotorial."

Now you won't earn any college credits for taking the time to read this, so instead I have decided to offer all who take the time to read it a chance to win a $25 Wegmans gift card. If interested, read the tutorial to follow and then follow the simple instructions and contest rules to enter your name for a chance to win.

Nursing Home Reimbursement 101

Although the reimbursement methodology for nursing homes is riddled with complexities, nuances, adjustments, ceiling caps and other various amenities, in its simplest form can be summarized as follows:

Medicaid (on average represents 65-70% of patient day utilization, 50% of service revenue)

Medicaid Assistance helps pay for the cost of nursing home care for those who meet specific resource and income limitations and are qualified by the Department of Human Services. Medicaid pays the NH a facility-specific per-diem less any portion of that per-diem which is determined to be the responsibility of the resident based on their net available monthly income (NAMI).

The facility-specific Medicaid per-diem rate is determined by compiling the facility’s base-year (1983) costs into 4 distinct categories:

1) Direct Costs (i.e. nursing, therapies, pharmacy, social work)
2) Indirect Costs (i.e. administration, maintenance, laundry, housekeeping, dietary)
3) Non-Comparable (i.e. physicians, dental, speech & hearing, utilities)
4) Property Costs (i.e. depreciation/principal, interest, insurance, rent, RE taxes)

The facility base-year direct costs are then adjusted by a facility-specific case-mix factor and a regional price index factor and divided by the facility’s total patient days to arrive at an adjusted cost-per-day. A clinical assessment tool (MDS), designed to measure resident acuity and resource utilization, determines the case-mix factor. This rate is then compared to a similar state-wide average cost-per-day and if your cost falls within a corridor established at a 95% floor and 105% ceiling, you receive your actual case-mix adjusted cost-per-day. If you fall below the floor, you receive a case-mix adjusted floor and if you fall above the ceiling, you are held to the case-mix adjusted ceiling.

The same process and formula is applied to your facility-specific indirect costs, except there is no case-mix factor applied since resident acuity is not a significant cost driver of indirect costs.

The facility-specific non-comparable costs are divided by total patient days to arrive at an actual cost-per-day and are reimbursed at cost.

Property costs are not reimbursed on base year costs, but instead are reimbursed at actual cost on a two-year lag based on reported costs. Major capital additions are subject to prior approval via the Certificate of Need (CON) approval process and all reported property costs are subject to subsequent audit & review by the Department of Health.

The sum of the calculated per-diem for direct, indirect and non-comparables is then trended forward from the base-year to the current rate year using an aggregate inflation factor established by the Department of Health. The facility-specific property cost per-diem is added to this sum along with other minor per-diem adjustments to establish your facility-specific Medicaid rate.

Medicaid Reimbursement Issues

* 1983 base-year costs are no longer very representative of the cost structure of the current nursing home operation.

* The annual trend factors designed to adjust the base-year costs to current costs have not kept pace with actual cost movement.

* On average the Medicaid rate computes to 75-80% of actual cost-per-day.

* Medicaid eligibility process can result in lengthy cash flow delays (> 6 mos.) or subsequent denial of coverage that often results in sizable bad debts.

* Medicaid case-mix adjustment methodology has recently been changed to only utilize Medicaid residents in the calculation, thus further reducing the reimbursement due to higher acuity Medicare skilled residents not being factored into the case-mix adjustment.

* Effective 4/1/2010, the methodology will be changed dramatically when Medicaid intends to move from facility-specific costs for direct, indirect and non-comparable to a regional average price for all within that region. This is expected to dramatically re-allocate Medicaid per-diems creating both “winners and losers”, while driving future costs towards decreasing averages.

* Medicaid loopholes and sheltering of assets has significantly added to the growing number of Medicaid recipients as the private pay sector diminishes and the public sector grows, further straining the State Medicaid budget.

* Medicaid reimbursement shortfalls result in nursing homes having to limit the number of Medicaid admissions they can take, which subsequently leaves many Medicaid residents without access to the proper level of care or backed up in hospitals.

Medicare (On average represents 7-10% of patient day utilization, 10-15% of service revenue)

Medicare Part A covers skilled nursing inpatient care for those over 65 year of age (or disabled) for a period up to 100 days in any one spell-of-illness. Skilled nursing care is a Medicare defined term that requires the patient to be receiving and needing certain high-level skilled services related to an acute care episode and minimum 3-day hospitalization. A new spell-of-illness is defined when a patient has an onset of a new acute care episode after a minimum of 30 days has passed from the last episode. Medicare beneficiaries can choose a Health Maintenance Organization (HMO) plan in lieu of traditional Medicare benefits. HMO plans generally follow traditional Medicare benefits, but can offer some enhanced variations. Medicare Part B covers physician services and certain skilled therapy services when provided outside of a Medicare Part A covered stay.

Medicare does not pay a facility-specific rate, but instead pays an established price for an array of over 50 Diagnostic Related Groups (DRGs). A patient is classified into the proper DRG based on the completion of a clinical assessment tool (MDS). A series of MDS are completed throughout a patient’s Medicare Part A stay, resulting in the potential for different DRG Medicare per-diem rates paid within a stay. Medicare DRG rates vary significantly and are driven by the assumed DRG medical acuity and resource utilization need. On average, Medicare rates fall between $300-400/day. The average Medicare Part A covered stay falls between 20-30 days and is generally a function of the duration of the need for skilled care, the potential for documented progress and the approval of the HMO case managers. Medicare Part B pays an established fee for billed physician visits and therapy treatments provided to Medicare beneficiaries in a nursing facility during a non Medicare Part A stay.

Medicare Reimbursement Issues

* Although the rates are significantly higher than Medicaid, the cost to care for these clinically complex patients is also significantly higher.

* Medicare has been continually decreasing the DRG price structure to address Medicare budget restraints.

* While on a Medicare Part A stay in a nursing home, the nursing home assumes payment responsibility for most all medical needs regardless of who or where these needs are met (excludes hospitalization, radiation treatments, prosthesis).

* Maximization of DRG payment requires significant documentation and process to ensure you capture all clinical interventions and thus receive the most favorable rate.

* Most Medicare Part A stays are short-term rehabilitation patients cared for in distinct rehab or transitional care units of nursing homes and are highly sought after by nursing homes.

* Federal government is actively pursuing a new Medicare payment methodology where Medicare payments for all providers of service (hospital, nursing home rehab, physician, home-care) to a covered beneficiary during any one spell-of-illness will be paid to a single “controlling entity” at an all-inclusive established capped price for that DRG. The “controlling entity” will be responsible for providing, contracting out and allocating the Medicare DRG payment among the various providers of service. Medicare’s payment is capped, while the “controlling entity” and its care partners own risk management and cost control.

Private Pay (on average represents 20% of patient day utilization, 25% of service revenue)

Private pay residents are those who do not qualify clinically for a Medicare Part A stay (although they may have Medicare coverage), and they do not qualify financially for Medicaid. Assuming they do not have other means of insurance (and most do not), they are responsible for paying the facility-specific private pay rate as agreed to in the admission agreement. The average private pay rate in this region is approximately $330-350/day for long-term care and $400 or more for short-term rehab.

Private Pay Issues

* Medicaid reimbursement shortfalls force providers to subsidize losses through higher private-pay rates thus shifting the Medicaid cost burden onto the private sector.

* More individuals are sheltering assets to qualify early for Medicaid Assistance, thus reducing the private pay sector.

* The Medicaid Assistance application process for private pay residents transitioning to Medicaid Assistance can be so demanding and difficult that many fail to follow-thru or qualify leaving the nursing home with extensive bad debts.

* The State currently assesses nursing homes a 6% cash receipt “tax”, which is generally passed on to private pay residents as a 6% (approximately $20/day) add-on to the private pay rate, further shifting public costs to the private sector.

Summary

A typical simplified 120-bed nursing home operating structure (based on industry averages) might look as follows:

Medicaid Revenue 29127 days (70%) X $185/day = $5,388,500
Medicare Revenue 4161 days (10%) X $400/day = $1,664,000
Private Pay Revenue 8322 days (20%) X $330/day = $2,746,000

Total Service Revenue 41610 days (95% occupancy) $9,798,500

Total Operating Expense $235/day = $9,778,350

Operating Margin .2% $ 20,150

Congratulations, you have successfully completed the Nursing Home 101 tutorial. To enter for your chance to win a $25 Wegmans gift card, simply click on the comment button and leave your full name (and a brief comment if you desire). You can use the URL option and just type in your name or use the anonymous option and just type in your name in your comment box. Only one entry per person and all my blog readers are eligible (staff, board members, volunteers, family and friends). One gift card per every 20 entries (up to 5 winners in total) will be randomly chosen from the list of names on Saturday, September 12th.

Good luck and thanks for reading and learning from my blog!

The Workers Compensation Story

If you only like light-hearted, fun blog postings then you might want to skip this week's entry as I plan to dedicate this posting to a recap of our 15 year history with a unique self-insured workers compensation Trust joint-venture. While it may be informative, I can't promise you it will entertaining. So proceed at your own risk...........

In 1992, a group of 8 nursing homes created a self-insured group Trust for the purpose of providing statutory workers compensation benefits for its members. Workers Compensation pays for lost time and medical expenses associated with a work-related injury. While nursing homes and related senior communities don't have the same injury risks as manufacturing companies, they actually have high claim experience due to claims and risk associated with lifting and positioning residents.

In the 90's, conventional insurance policies and the default option State Insurance Fund had become high cost and low service options. Many organizations were looking to take more control by self-insuring this mandatory program. Unfortunately, unless you were a very large organization, self-funding was generally considered to be too risky and cost prohibitive. Thus the advent of joint-venture Trusts where several organizations joined forces to pool their premiums, risks and costs.

In 1994, Kirkhaven joined the Long Term Care Risk Management Group (LTCRMG), which had increased from the original 8 members to now 15 members. Members included both not-for-profit and for-profit nursing homes, assisted living and retirement communities in the Rochester and Buffalo area. Potential members were screened and had to meet certain minimum financial, loss control and claims experience requirements.

In short, the Trust was structured to allow all the member organizations to share in the routine overhead costs associated with a program like this while self-insuring their workers compensation risk. These include:

• Program Management
• Claims Administration
• Loss Control Services
• Auditing & Actuarial Services
• Reinsurance Premiums

Each organization pays into the Trust based on a standard formula applied to their total payroll exposure modified by a organization-specific historical claims experience factor. However, your ultimate program cost is your actual claims experience for your organization plus your pro-rata share of the non-loss administrative costs. To help mitigate the exposure for large losses, the Trust includes a large loss sharing formula among all members and also purchases reinsurance to cover very large claims. Every year an accounting of each members premiums paid minus the total cost of claims paid, reserves established and pro-rata overhead costs results in either a refund or additional assessment to continually balance your ledger until all claims in that year are ultimately closed.

The benefit of these self-insured Trusts is that you could control the service providers and ensure you are getting the service you desire or fire them and hire someone else. There are no insurance company profits built into the costs and the investment income earned by the claim reserves inures back to the Trust and the members to help offset costs. You still need to manage your risk and control claim costs as best as possible, but the structure of a self-insured Trust simply sets up better to control and manage both claims and cost.

While it is not possible to accurately know what the alternate insurance market rates might have been in future years to enable us to compare historical costs and savings, there is no doubt that the Trust saved us significant dollars over the early years. In 2000, we added Valley Manor to the Trust, which had now grown to over 30 members.

Within the past several years, the federal workers compensation program has undergone significant changes, scrutiny and regulatory reform. Additionally, many self-insured Trusts have gone bankrupt or terminated leaving unfunded liabilities in the hands of the State. In turn, the Workers Comp Board of the State has levied higher assessments and more stringent regulatory requirements on remaining self-insured Trusts to recapture losses and minimize risk for future losses. This action has made it more difficult for Trusts like the LTCRMG to operate and compete with other workers compensation insurance programs.

Within the past few years, the challenging economy and tougher Trust restrictions has resulted in nearly half of the LTCRMG members terminating their participation in the Trust. Additionally, both current and former members have fallen behind on their payment obligations resulting in higher accounts receivables and risk of bad debts. Six former members have either gone bankrupt or left the group with bad debts totaling 2.2 million dollars, resulting in legal costs to attempt to collect and/or reallocation of the bad debt cost to the other members.

As the once solid core of our innovative Trust begins to unravel, the handwriting is on the wall. The Trust must be dissolved. What was once a viable solution to a problem has now been faced with a changing scenario that questions the on-going value of this Trust as structured. Our goal now is to manage a responsible and organized exodus that also includes a new direction for how we will provide workers compensation benefits.

The tough reality is that no matter where we choose to go from here, none of the LTCRMG members can "run" from the cost or claims still in the works from all previous years. We can close and lock the "barn door", but the "cows" that have already left are still all of our responsibility. The board of directors of the LTCRMG, which is comprised of the CEO or CFO of each member, is taking on the responsibility of working with our legal advisers and program administrators to enable us a "soft landing" with the least amount of cost and risk.

From my perspective, the LTCRMG was an excellent program in its time, but has now become too costly and risky to continue as a viable option. Sadly, it is time to move on to something else and our challenge is to mitigate the transition cost and find the next new solution for today's workers compensation environment.

Dear Diary

Tuesday, August 11..........Dear Diary:

7:30 a.m. I'm back at work following a wonderful week vacation. I didn't leave town, but had a blast spending time on the boat, taking kayak trips, going to a concert, taking in a baseball game, knocking off household projects and working on the writing of my novel. Weather was great and I had a relaxing week. Having a hard time getting used to wearing shoes and a tie again.

8:30 a.m. A lot of people stopped by to welcome me back. My desk and work load isn't to bad. The nice thing about not going away on vacation is that I was able to check my e-mail and voice mail daily. I found by spending a little time each day managing my office data it kept things from piling up upon my return. Kirkhaven Administrator, Amanda Brown, stopped in to say hi and get me caught up on things. Quiet week while I was gone. Poor Amanda, she has been trying to schedule a vacation of her own, but is afraid the Health Department will show up for their annual surprise inspection while she is gone. Now that I'm back, she has finally decided she is starting her vacation tomorrow.

9:00 a.m. What's all the commotion outside my office? Uh oh, I think we have visitors. Like wild fire, the word spreads throughout the nursing home. "The Department of Health surveyors are here!" A team of nurses, sanitarian, dietitian, social worker have arrived armed with lap tops, manuals and paperwork. Amanda has postponed her vacation plans. Let me see, at this time yesterday I was kayaking out on the Genessee River. Welcome back to work Jim.

Noon It's hard to explain the atmosphere during a survey. We go about our business as usual, but it is like someone just pushed the "fast-forward" button on your life but you're running in knee deep sand. Everything we do is under the microscope and magnified. The surveyors observe, ask questions, talk to residents & families, review charts, dig deeper, ask more questions, watch your every move as you try to go about your "normal" day. I guess you could say it's a little intimidating and nerve wracking for our staff.

5:00 p.m. End of the first day. According to Amanda, all is good so far. Staff is okay and nothing major appears to have surfaced. Time to go home, this working for a living is tiring.

Wednesday, August 12........Dear Diary:

9:00 a.m. I can't believe I'm stuck in this meeting across town. Didn't the rest of the world get the memo about the surveyors being at Kirkhaven? Doesn't our regular work go away when the annual State survey is underway? This is a pretty important meeting in its own right, so I need to focus. I know Amanda and her team have things under control at Kirkhaven.

11:00 a.m. Finally, this meeting is over. We accomplished a lot. I'm helping to lead a potential shut-down of our self-insured Workers Comp Trust, which we participate in along with several other health care organizations. A significant initiative with critical implications. I wonder how the survey is going today.

1:00 p.m. "Houston we have a problem!" Seems the coffee temperature is too hot according to the surveyors. Could cause serious injury to our residents. But our residents like hot coffee and often complain it's too cold? According to the surveyors, this could put us at an "immediate jeopardy" deficiency level. That's not good! Immediate Jeopardy (IJ) means no new admissions and potential fines until the problem is adequately resolved.

4:30 p.m. Still a lot of commotion going on about coffee temperatures. Surveyors taking coffee temperatures throughout the house. We pulled the plug on the coffee dispensers on each floor and started serving coffee from urns. The coffee vendor has been called. Amanda copies me in on an e-mail from our Medical Director entitled, "Coffee, Tea or IJ". You have to have a sense of humor to get through this stuff. I wonder what tomorrow will bring.

Thursday, August 13.......... Dear Diary:

8:00 a.m. Amanda and I met with our Medical team Director. Our new physician team is awesome and all is well, but we need to work on some coordination issues to ensure the staff and physicians are working as efficiently and effectively as possible. We identified some good ideas and a process to begin working on this. I wonder how the survey is going today?

10:00 a.m. I had to attend an important meeting with the County Department of Human Services. I'm working with other industry representatives on a unique initiative to help expedite the vast backlog of Medicaid Assistance applications that cause critical cash flow issues for nursing homes. The meeting is very productive and we agree in principle on a process to move forward with.

noon I met with Amanda to get an update on the survey. The coffee debacle seems to be resolved for now. A few other issues are cropping up. Nothing devastating, but the normal little things that eventually happen when under the microscope. There are so many resident interactions within a day, so many clinical treatments, so many opportunities to both do well and slip up, that eventually the surveyors will find something to write you up about. That's just how the system works. The surveyors are just doing their job, no different than us.

2:00 p.m. I went to participate in the Valley Manor Newcomers Welcoming party. What a nice respite from the rest of my week. We have had a lot of new residents move in over the past several months. All have such interesting backgrounds. All the residents come to meet and greet everyone. It is a lovely event and enjoyed by all. The renovated Valley Manor courtyard is finishing up and looks great! I wonder how the survey is going?

Friday, August 14.............Dear Diary:

7:00 a.m. Early start today. I'm finishing up two big projects. The first is the completion of our annual IRS filings for our 4 corporations. These are usually done by our auditors, but there are significant changes in the forms this year and there's no way a third party can complete them without us providing them the information anyway. The filing has gone from approximately a 10 page form to a 25 page form. I can't ask the finance office to take on yet another project. Sometimes I find that the best way for a CEO to stay in touch with the organization is to immerse yourself in the operation. It's a fine line between micro-managing and staying informed, but I like to walk it. The second project is the compilation of the Assisted Living licensure application data to submit to the State. Staff have been working hard on this and we appear to be getting to the end of the long process.

10:00 a.m. Spoke with Amanda for an update. She seems a little ragged. It's been a long week. She shared some incidents that the surveyors and staff have shared with her. Seems like some potential for deficiencies are adding up, but still nothing real major. Then again , maybe we're just paranoid at this stage of the game.

Noon Had lunch with board member, John Billone, a local developer. We had good conversation about the Kirkhaven Replacement Project and the current property opportunity we are evaluating with Buckingham Properties for the old Armory site on Culver Road. Some good ideas, input and support from John who is very knowledgeable about the property and development projects in general. The survey exit conference is scheduled for 2 p.m. today.

2:00 p.m. The survey team leader sits down with our entire leadership team in the conference room. We open up the Exit Conference to the entire team. We work as a team and we take the good and the bad as a team. The survey team leader begins with her scripted disclaimers and instructions. She then begins to identify the survey team findings which represent the "potential" for any deficiencies. She indicates there are no deficiencies that represent substandard care. Nice, we're off to a good start!

She then proceeds to identify 3 circumstances whereby they witnessed a failure of staff to properly wash their hands, which is an infection control issue. I struggle to keep up with my notes as she rattles off the details. Then she begins to thank us for our cooperation during the survey and do we have any questions. "Uh.........is that it?" I wonder to myself. Could I have dozed off for 20 minutes and just woke up in time for the concluding remarks? The room is stunningly quiet as Amanda escorts the survey team out and sees them to the front door.

I never noticed before how long it takes for the conference door to close itself. When it finally clicked closed, everyone looked at everyone else and burst into a collective sigh and then laughter. "What just happened?" everyone asked. "Well," I said, "It appears we just aced our survey with the potential for only one little deficiency of minimal scope and severity."

When Amanda returned she had the biggest smile on her face that any of us have ever seen. "Amazing job everyone," she said. "we did it!" The key word being "we". It has been a long and tiring week for all, but because of the work of all, we aced our survey. Now I still believe that the State survey is only one measure of our quality, and arguably not even a great measure. But it is a measure and a critical component of our regulatory compliance requirement and public relations. We take it seriously and thus are overjoyed with our awesome results!

3:00 p.m. "Great job everyone. Take the rest of the week off," I said to an exhausted yet elated leadership team.

p.s. Thank you Amanda for your incredible leadership and enjoy your well-deserved vacation. Thanks for visiting my Blog. Talk to you all again next week.